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How Colleges Conceal their True Prices
Misleading financial aid offer letters cause students to underestimate how much they are borrowing from taxpayers.
Welcome to The Tassel, FREOPP’s brand-new newsletter on higher education policy, written by senior fellow Preston Cooper. Each month, The Tassel will dive into our latest work on higher education, along with a handpicked selection of research and articles from around the web that we think are worth your time. To manage your subscription preferences, visit your Substack settings.
College tuition is too expensive. Solutions range from reining in federal financial aid to reducing administrative bloat. But one treatment for spiraling college costs stands apart for its simplicity: make sure students know how much they’re paying.
How colleges conceal their true prices
Earlier this month, the Government Accountability Office (GAO) published a report revealing that colleges give misleading and sometimes outright deceptive information to prospective students in financial aid offer letters. Over at Forbes, I discuss GAO’s findings: just 9 percent of colleges accurately report the net price of tuition when they communicate financial aid offers to students.
Forty-one percent of schools do not list a net price at all. Another fifty percent understate the net price by excluding key costs or counting repayable federal loans as “financial aid.” One financial aid offer proudly reported that the recipient student, a low-income individual, would have to pay just $350 after aid. But that was only after the school pushed tens of thousands of dollars in taxpayer-backed loans on this student and his family. The true “net price” was over $40,000, not $350.
Nearly a quarter of financial aid offers do not distinguish between grants and loans. GAO cites another offer letter that never once used the word “loan,” even as the college included loans of nearly $25,000 in the student’s “aid” package. This sort of behavior would get a private bank hauled before Congress, but in higher education it is business as usual.
It’s no wonder that half of students underestimate how much they are borrowing from the federal government by a fifth or more. Around 14 percent of student borrowers are not even aware they have debt.
In my 2021 report on the cost of college and what to do about it, I zero in on price opacity as a key driver of college costs. When students do not know how much they are borrowing, they are less sensitive to price. This allows colleges to jack up tuition on the sly. The result is that higher education costs much more than it would in a transparent, competitive market.
In response to GAO’s findings, Representatives Virginia Foxx (R-NC) and Lisa McClain (R-MI) introduced the College Cost Transparency and Student Protection Act. The bill would bar federally-funded colleges from counting loans as “financial aid” and require students to actively affirm they understand how much they are borrowing. Financial aid offer letters would need to include estimates of students’ loan payments and earnings after graduation, so students can gauge the affordability of their loans before they borrow.
Price transparency is not a silver bullet. But it is a necessary condition to ensure that markets operate efficiently. And few would disagree that higher education is one of the country’s most dysfunctional markets.
What I’m Writing
Student loan forgiveness is headed for the Supreme Court. In February, the justices will hear challenges to President Biden’s plan to cancel up to $20,000 in student debt per borrower. A decision is expected in June, and it is unlikely to come down in Biden’s favor: multiple lower courts have already blocked the plan in response to lawsuits. At OppBlog, I dive into the most successful of those lawsuits (Brown v. Cardona), which argued before a federal district court that the Biden administration violated the Administrative Procedures Act by failing to seek public comment on the loan-cancellation scheme.
Even if SCOTUS strikes down loan forgiveness, the work will not be over. The federal government is on track to disburse nearly $1 trillion in new student loans over the coming decade. Because higher education sometimes leaves students worse off financially, many borrowers will struggle to repay. Rather than forgiving yesterday’s debts, policymakers should ensure that federal loans going forward only fund educational programs with a strong record of moving students into the middle class. In Forbes, I sketch out a plan to do just that. Colleges should be required to compensate the government for a portion of unpaid student loans, and Congress should use the revenue to provide targeted increases in financial aid for low-income students in high-return programs.
A number of elite law schools will withdraw from the U.S. News and World Report rankings. Scandal after scandal has rocked the vaunted college-ranking publication in recent years. In 2019, the dean of Temple University’s business school was sentenced to prison for his role in a scheme to falsify the data his university sent to U.S. News. At RealClearEducation, I argue that uncontrolled federal subsidies, particularly for graduate education, have fueled an arms race among elite universities to enroll as many students as possible in programs that are profitable for the schools but less so for the students. That many elite law schools now see a high U.S. News ranking as a liability rather than an asset could be a sign that the scandals have done lasting damage to the publication’s reputation.
What I’m Reading
State governments are denying job opportunities to millions of Americans—and ignoring a large pool of talent—when they stipulate degree requirements for jobs that don’t fundamentally need a college education, argue Marina Zhavoronkova and Kate Naranjo of the Center for American Progress. More states ought to follow the lead of Colorado, which “works to ensure that all job descriptions are skills-based, as well as accessible to qualified workers regardless of degree attainment.” Ninety percent of positions in the Colorado state government now have skills-based descriptions.
If the Biden administration extends the pause on student loan payments through the end of 2024, the cost will be $275 billion, which rivals that of the headline loan-forgiveness plan, according to the Committee for a Responsible Federal Budget. Through forgiven interest and excess inflation, the payment pause will effectively cancel $10,000 in debt for the typical borrower with a bachelor’s degree and ten times that for the average new doctor. The pause has already cost taxpayers $155 billion and added 20 basis points to inflationary pressures.
At Education Next, Nat Malkus and Cody Christensen show that school districts which went fully remote during the pandemic lost hundreds of thousands of students—and those students aren’t coming back, even after most schools reopened during the 2021-22 school year. We are likely to feel the negative impact of remote education for years to come, including with regard to college readiness.
Forty-four percent of jobseekers with a college degree regret their choice of major, CNBC reports. The most-regretted major is journalism, followed by sociology and liberal arts. The least-regretted majors? Computer science, criminology, and engineering. Not coincidentally, those data points correlate with our estimates of college return on investment by major.
What I’m Doing
My Twitter followers will know about my obsession with state highpointing, a challenge to reach the highest point in all fifty states. My most recent conquest was Spruce Knob in West Virginia (below), which I summited over a weekend in late October. That brings my highpoint total to 18. Next up? Kentucky’s Black Mountain in January.
Thanks to a lost cell signal, I missed a turn on my drive back to Washington and added about an hour to my trip. The patchy cell network in eastern West Virginia is symptomatic of the “digital data divide,” which my colleague Mark Dornauer discusses in OppBlog. Better connectivity in rural areas could improve access to telemedicine and boost farm production by 18 percent, according to Mark. It would also enable more students to participate in thoughtfully-designed online higher education.
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